Professional misconduct: Withers v. NZ Law Society

Canterbury barrister and solicitor Murray Ian Withers was disbarred from practice after being found guilty of professional misconduct when he acted for both buyer and seller in the subdivision of a property on Taylors Mistake Road, Scarborough.  His failure to disclose a personal interest in the purchasing company amounted to a serious conflict of interest.

Withers appealed unsuccessfully to the High Court, arguing suspension from practice followed by work under supervision was a more appropriate penalty.

The Scarborough sale concerned over 8200 square metres of land which could be subdivided into between three to eight lots.  The court was told a sale agreement was completed in late March 2007 at a price of $1.4 million between the SCK Family Trust as vendor with the potential purchaser left open.  Withers signed on behalf of a named purchaser “or nominee”.   The required deposit of $200,000 was not paid.  Within days, Withers was attempting to renegotiate the contract, supposedly on behalf of the named purchaser.  After some discussions, the SCK Family Trust agreed to receiving a reduced sum in cash by taking one of the proposed sections valued at $400,000 in part payment with a further sum of $375,000 left in on mortgage.  They then learnt that the nominated purchaser was now a development company called Clifden Holdings Ltd.   Unbeknown to them, Wither’s family trust was part owner of Clifden.  Withers did not get their consent to his acting for both vendor and purchaser.

Evidence was given that Withers failed to act in a professional manner: he did not disclose the conflict of interest when the original contract was signed, he did not disclose the conflict of interest when the contract was renegotiated and he did not protect the SCK Family Trust in respect of the $375,000 left in - no loan agreement was prepared, no mortgage was registered and no personal guarantees were obtained from the directors/shareholders of Clifden as the borrower.

In addition to SCK Family Trust’s complaint to the Law Society, Christchurch City Council also laid a complaint.  Council had agreed that a $117,900 development contribution payable following the subdivision could be delayed, after Withers promised that payment would be made from the sale proceeds of lot six in the subdivision.  That personal undertaking was not honoured after lot six was sold.

Confirming that Withers should be disbarred, the High Court said he had failed to act with fairness and openness towards the SCK Family Trust.  He deliberately deceived his client by pretending to act as a go-between with the purchaser.  He discouraged the Family Trust from getting independent legal advice.

The High Court did not consider a period of suspension and supervision would be an appropriate penalty given Wither’s disciplinary record.  Evidence was given that Withers had been subject to Law Society complaints in the past for sloppy conveyancing practice and for charging excessive fees.  In one instance he had been ordered to reimburse a deceased estate $1500 after he contracted his son’s touch rugby team to clean up a house prior to sale rather than engaging professional house cleaners.  The amount paid to the rugby team was more than cleaners had quoted for the work

Withers v. NZ Law Society – High Court (28.03.14)

14.013

Tax: Yandina Investments v. ANZ

Air New Zealand had its wings clipped when it miscalculated the tax effect from purchasing the “tail” of a Boeing 747 lease.  Attempts to recover compensation from a consortium of banks failed when the Supreme Court ruled Air New Zealand was simply trying to wriggle out of a commercial deal when tax costs blew out to over $30 million.

Airlines seldom own their own aircraft.  Back in 1982, Air New Zealand sold one of its 747 aircraft to a consortium of New Zealand banks which then leased the aircraft back to Air New Zealand.  Like many big sale and leaseback deals, the consortium was facing a large tax bill in the closing years of the lease.  It is common for aircraft financiers to sell their rights to the lease as it is about to expire.  The “tail” is sold to a taxpayer who is either exempt from tax or has tax losses which can be used.

The court was told Air New Zealand paid $10.9 million to buy the “tail” of its own 747 lease at a time when there were lease rentals still payable of $45.5 million.  The agreed price was calculated on the “net profits” the consortium would otherwise have received and the residual value of the aircraft at the end of the lease.

Air New Zealand agreed to pay tax otherwise payable by the consortium for the balance of the period the lease was to run.  A final tax bill of some $30 million was expected after accounting for the further rentals paid and depreciation recovered on sale of the aircraft.  Air New Zealand expected to set off this tax liability against other tax losses, but these tax losses were disallowed by Inland Revenue forcing Air New Zealand to meet the unbudgeted $30 million tax bill with tax penalties and interest for late payment added.

Air New Zealand sued the banking consortium alleging the “net profit” used to calculate the $10.9 million price paid was incorrectly calculated and needed reassessment.

The court disagreed.  It was not until after Air New Zealand faced difficulties over its tax loss claims that it started disputing any calculation of the price paid, the court said.  The arguments put up by Air New Zealand were not plausible given the wording of the contract and the commercial context within which negotiations took place.

Yandina Investments v. ANZ – Supreme Court (26.03.14)

14.012

Insurance: Skyward Aviation v. Tower Insurance

Statements by Tower Insurance that it would always act reasonably when dealing with clients were quickly dismissed by the Court of Appeal.  Tower could not override terms of a replacement insurance policy covering a Christchurch earthquake-damaged property just to suit its own economic imperitaves.

Tower Insurance and Christchurch property owner, Skyward Aviation 2008 Ltd were over $300,000 apart in their assessments of compensation payable after Skyward’s property in Burwood was red-zoned following the 2010 and 2011 earthquakes.  Skyward was covered by Tower’s Provider House (Maxi Protection) Policy.

The court was told Skyward had full replacement cover for a villa constructed in the early 1900s.  After it was red-zoned, Skyward accepted government’s general offer for the value of the land alone and elected to recover the value of the villa by claiming from Tower on its replacement insurance.

Tower said Skyward was entitled to no more than the market value of the property prior to the earthquake.  This money could be used to buy a replacement home elsewhere.  Payment of a higher sum would amount to a windfall gain for Skyward.

Skyward said it was entitled to the amount required to rebuild elsewhere to current regulatory standards – a difference of over $300,000 from Tower’s offer.

The Court of Appeal ruled in favour of Skyward.  Wording of the insurance policy promised full replacement cover: new for old.  This is the agreement Tower entered into.  Tower could not complain that this could result in a policy holder finishing up with a better property than they started.

Policy wording gave Tower a discretion whether to repair, rebuild or replace – but this discretion did not apply in all instances.  If the house was not economically repairable, Tower had no right to choose; policy wording then allowed Skyward to decide.  Skyward was within its rights to demand the money equivalent of “new for old” and to use this money to purchase any house of its choice.

Tower had tried to argue that if there was any disagreement between Skyward and itself over estimated “new for old” costs then Tower could simply pay pre-earthquake market value of the property and leave it at that.

The Court of Appeal said that while insurers can be expected to look for the most economic outcome the terms of the insurance contract are paramount.

Skyward Aviation v. Tower Insurance – Court of Appeal (20.3.14)

14.011